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Future

Dow Falls Nearly 900 Points, Oil Drops as Delta Variant Sends Investors Into Bonds


Stocks, oil prices and government-bond yields slid Monday as anxiety mounted over the spread of the Delta coronavirus variant and its potential impact on the global economy.

The Dow Jones Industrial Average slumped 876 points, or 2.5%, in afternoon trading, putting the index on track for its worst one-day drop in point terms since October.

The S&P 500 fell 2%, while the technology-heavy Nasdaq Composite declined 1.3%. Monday’s losses marked an acceleration after U.S. stock indexes retreated last week, snapping a three-week winning streak.

Investors sheltered in the safety of government bonds. The yield on 10-year Treasury notes fell to 1.182%—its lowest level since February—from 1.30% Friday. Bond yields fall when bond prices climb.

Oil prices fell after the Organization of the Petroleum Exporting Countries and a Russia-led group of big producers agreed to raise production. Futures on Brent crude, the international benchmark, tumbled 6.7% to $68.68 a barrel, their lowest level in more than six weeks.

The moves were reminiscent of trading patterns that prevailed in the early days of the pandemic. Investors sold shares of companies directly affected by restrictions on movement and business, while buying government bonds and stocks that stood to benefit from renewed lockdowns.

American Airlines Group,


AAL -4.51%

United Airlines

and cruise operator

Carnival

were all down at least 4.5%. Energy producers

Marathon Oil

and

Occidental Petroleum


OXY -5.09%

both tumbled more than 5%.

Stocks that climbed included supermarket-chain

Kroger,


KR 3.71%

which rose 3.4%, and online-crafts marketplace

Etsy,


ETSY 2.80%

which was up 2.8%.

Surging cases of the coronavirus in many parts of the world, including highly vaccinated countries such as the U.K., have prompted investors to dial down their expectations of economic growth in the coming months. Last week, some of California’s most populous counties either reimposed mask mandates or recommended wearing masks indoors to fight the Delta variant.

“The emergence of this more highly transmissible Delta variant…has brought into the question the sustainability of this reopening and the recovery,” said

Candice Bangsund,

a portfolio manager at Fiera Capital. Still, she said the variant would delay rather than derail a big pickup in economic activity and called the selloff a chance to scoop up shares of energy producers, industrial firms and financial companies.

The inflation rate reached a 13-year high recently, triggering a debate about whether the U.S. is entering an inflationary period similar to the 1970s.

Despite Monday’s selloff, the S&P 500 is up more than 12% this year and closed at a record just one week ago.

“The market has been due for a pause or pullback or, dare I say it, a correction,” said Hans Olsen, chief investment officer of Fiduciary Trust.

Some investors also are concerned that rising prices will pinch consumption and prompt central banks to withdraw stimulus, creating an environment of lower growth and higher inflation in which stocks tend to struggle.

Inflation accelerated to a 13-year high in the U.S. in June. Some evidence suggests that the price increases have started to knock consumers’ confidence in their ability to keep spending. For much of 2021, business reopenings, rising vaccination rates and government pandemic aid have helped propel rapid gains in consumer spending, the economy’s main driver.

“What you’re seeing is a sense that the consumer is starting to be affected quite significantly” by the jump in prices, said

Sebastien Galy,

senior macro strategist at Nordea Asset Management.

All 11 sectors of the S&P 500 dropped Monday. Energy and financials were the worst-performing groups.

One bright spot was

Five9,


FIVN 6.13%

which jumped 4.8% on news that

Zoom Video Communications


ZM -2.43%

plans to buy the provider of cloud-based customer-service software in a deal valuing the firm at $14.7 billion. Zoom shares shed 4.1%.

The National Bureau of Economic Research said Monday that the U.S. officially climbed out of a recession in April 2020. The pandemic-driven recession was two months long, making it the shortest on record, according to the bureau, the official arbiter of U.S. recession dates.

Looking ahead, investors will be monitoring corporate earnings this week for signs of how companies are faring amid the revival of economic activity. Air carriers American and United are among the hundreds of companies set to report quarterly results this week, along with

Intel,


INTC -1.08%

Netflix


NFLX -0.15%

and

Chipotle Mexican Grill.


CMG -1.45%

Overseas, major stock markets retreated amid fears of the Delta variant. The Stoxx Europe 600 slid 2.3%, dragged down by shares of travel, leisure and commodities companies, as well as banks.

In Asia, technology giants

Alibaba

and

Tencent

weighed on Hong Kong’s Hang Seng Index, which fell 1.8%.

Surging Covid-19 cases in many parts of the world have prompted investors to dial down economic growth expectations.



Photo:

Richard Drew/Associated Press

Japan’s Nikkei 225 dropped 1.3%. More athletes and staff members attending the Tokyo Olympics have tested positive, while cases are surging in Indonesia. Sydney, Australia’s most populous city, is under lockdown because of a Delta outbreak.

David Chao, a market strategist at Invesco, said the spread of the Delta variant across Asia, coupled with low vaccination rates and expectations of additional social-distancing measures, has “taken wind out of the sail for many investors expecting an economic rebound” in the region.

Mr. Chao said he expected investors to continue to pull funds out of Asian stocks and shift them to shares in developed markets with high inoculation rates, such as the U.S. and U.K.

Write to Joe Wallace at [email protected], Alexander Osipovich at [email protected] and Frances Yoon at [email protected]

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



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Gadgets

Tesla debuts ‘FSD’ subscription for $199 per month


The interior of a Tesla Model S is shown in autopilot mode in San Francisco, California, U.S., April 7, 2016.

Alexandria Sage | Reuters

Tesla just introduced a way for customers to subscribe to its premium driver assistance package for $199 a month, rather than paying $10,000 up front.

Marketed as Full Self-Driving capability (or FSD), the driver assistance system does not make Tesla’s electric vehicles safe for use without an attentive driver behind the wheel.

One eligible owner shared a notice they received from Tesla on Friday with CNBC, which said:

“Full Self-Driving capability is now available as a monthly subscription. Upgrade your Model Y … for $199 (excluding taxes) to experience features like Navigate on Autopilot, Auto Lane Change, Auto Park, Summon and Traffic Light and Stop Sign Control. The currently enabled features require active driver supervision and do not make the vehicle autonomous.”

While this person’s Tesla Model Y possessed all components needed to start a FSD subscription, other owners lamented that they would have to pay $1,500 to upgrade their Tesla’s computer to the Hardware 3, or HW3, version the company first showed off at its Autonomy Day event in April 2019 in order to subscribe.

Customers who previously bought Tesla’s Enhanced Autopilot package, which it is not selling any longer, can subscribe to FSD for a lower price of $99 a month but may require the HW3 upgrade.

In a subscription agreement on Tesla’s website, Elon Musk’s electric vehicle maker cautions that, among other things:

  • FSD features are “subject to change, limited by region,” and can only be used on Tesla vehicles that have newer hardware and Autopilot technology installed.
  • Drivers are responsible for tolls, parking or other traffic violations that happen in a Tesla that’s operating with FSD features engaged.
  • Tesla can increase the price for a subscription any time, but will give drivers a one-month advance notice before billing them at a new rate.
  • Owners can cancel FSD any time but the company won’t prorate their monthly payment if they do.
  • Tesla can suspend or cancel a driver’s FSD subscription if they use the technology, “for anything unauthorized or inappropriate” or for non-payment.

All newer Teslas include a standard set of driver assistance features dubbed Autopilot. The Autopilot or standard features enable a Tesla to “steer, accelerate and brake automatically within its lane,” according to Tesla’s website.

The premium FSD package enables more elaborate features like Smart Summon, which lets a driver call their Tesla to come pick them up from across a parking lot or down a long driveway using the Tesla mobile app like a remote control.

Tesla has also been promising that a feature called “Autosteer on city streets” is coming soon to drivers with FSD. But the company is far behind its original and even revised goals for delivering a sophisticated “robotaxi.”

Musk promised a hands-free, cross country Tesla driverless demo in 2017. His company has yet to complete that mission. In 2019, Musk predicted that Tesla would be making autonomous robotaxis in 2020, and cars without steering wheels or pedals in 2021.

On a first-quarter earnings call, Tesla CFO Zachary Kirkhorn said, “If you look at the size of our fleet and you look at the number of customers who did not purchase FSD up front or on a lease and maybe want to experiment with FSD, this is a great option for them.” He added, “As the portfolio of subscription customers builds up, then that becomes a pretty strong business for us over time.”

To refine unfinished driver assistance features, Tesla gives some owners early access to a beta version of FSD — effectively turning thousands of everyday drivers into software testers on public roads in the U.S.

Tesla did not immediately respond to a request for further information, including whether FSD subscribers will be eligible to participate in the FSD Beta program.

In recent months, as CNBC previously reported, Tesla has also been telling regulators at the California DMV and NHTSA that its FSD, and FSD Beta technology amounts to a “level 2” system — a reference to vehicle automation categories written by a professional association for engineers, SAE International.

According to the SAE’s standards, last updated in May 2021, drivers of a level 2 vehicle are expected to “constantly supervise” it, including by steering, braking or accelerating “as needed to maintain safety.” Level 2 vehicles have features like automated lane centering that works in conjunction with adaptive cruise control. By contrast, a level 4 vehicle may not need a steering wheel or pedals and can operate as a local, driverless taxi in limited conditions like fair weather.



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Gadgets

Ride-hailing giant Didi wants to be more than just the Uber of China


A user opens the Didi Chuxing ride-hailing smartphone app in Shanghai, China, on Sept. 18, 2020.

Qilai Shen | Bloomberg | Getty Images

BEIJING — China’s version of Uber, Didi Chuxing, is trying to use car travel as a way into multiple aspects of daily life from grocery shopping to finance.

Didi filed Thursday to list in New York in what many expect could be the largest initial public offering in the world this year. Founded in 2012, the company ranks among the five largest privately held start-ups in the world and counts SoftBank, Uber and Tencent as major investors.

Smartphone-based ride hailing in China remains Didi’s primary business, generating $20.4 billion in revenue last year amid overall net losses of $1.62 billion, according to the prospectus. But as Didi swung to a profit in the first quarter of this year, the revenue share of “other initiatives” rose to 5%, from 4% for all of 2020. That’s up from 1.2% in 2018.

A quick look at Didi’s smartphone app reveals a slew of other products tied to bike sharing, movers, personal finance and gas stations. The array of icons resembles that of Alibaba-affiliated Alipay, whose app is not only a mobile pay platform but one that allows users to book airplane tickets and pay for utilities. Similarly, Southeast Asia’s prevailing ride-hailing app Grab delivers food and wants to become a regional leader in mobile payments.

Eight kinds of car services

Didi is the primary app for ride hailing in China, even with the entry of several other players, including ones that focus on the high-end (Shouqi) or new energy vehicles (Cao Cao).

Users can choose from eight options on Didi, ranging from carpooling to luxury car service. Didi also lets users hail taxis through its app, and runs a chauffer business that assigns drivers to car owners who may have had too much alcohol or cannot drive their own vehicle for other reasons. These temporary drivers can travel between assignments on fold-up bicycles.

The company said it had 377 million annual active users and 13 million annual active drivers in China for the 12 months ended March 31. Didi said it made 133.64 billion yuan ($20.88 billion) in the “China mobility” category last year.

Including Didi’s other services like e-bikes and freight, customer costs for different kinds of products can run from 15 cents to more than $100, the prospectus said.

Building up a finance arm

Didi has also partnered with China Merchants Bank for supporting credit card applications through the ride-hailing app and offering installment purchase plans for cars. A Didi subsidiary works with Ping An Insurance to sell financing and lease-related products, as well as insurance.

The start-up leases vehicles to drivers at prices it claims are about 20% lower than outside Didi’s platform. While more than 600,000 vehicles are available for lease, about half of these are owned by roughly 3,000 vehicle leasing partners, reducing the amount of assets Didi is responsible for, the prospectus said.

Anecdotally, Didi was recently promoting its own mobile payment system to some users in Beijing by setting it as the default payment option — with a discount. Users had to manually select other options such as WeChat pay, after which the discount was removed.

Didi’s ride-hailing app also works with international credit cards. The company operates in 15 countries, including Brazil, Mexico and Japan.

Bets on electric

Many analysts expect that self-driving, shared vehicles will become a major mode of transportation in the future, rather than individual car ownership.

Didi has invested in its own autonomous driving unit, which launched “robotaxis” in part of Shanghai in June 2020. The ride-hailing company announced in November it co-developed an electric car with BYD called the D1, which would roll out to major Chinese cities in subsequent months.

In May, the autonomous driving unit and state-backed GAC Aion New Energy Automobile agreed to work toward mass production of fully self-driving new energy cars.

Didi claims it has the largest electric vehicle charging network in China, based on self-commissioned research.

Data privacy and other risks



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China’s Xiaomi to launch electric car business and invest $10 billion


Xiaomi’s headquarters in the Xuhui District of Shanghai.

Costfoto | Barcroft Media | Getty Images

GUANGZHOU, China — Chinese smartphone giant Xiaomi has announced plans to launch an electric vehicle business and invest $10 billion over the next 10 years.

The company will set up a wholly-owned subsidiary and the initial phase of investment will total 10 billion yuan ($1.52 billion), it said Tuesday.

Xiaomi Chief Executive Lei Jun will also be the CEO of the car unit.

“Xiaomi hopes to offer quality smart electric vehicles to let everyone in the world enjoy smart living anytime, anywhere,” the company said in a statement.

The Chinese technology firm, which is the world’s third-largest smartphone maker, is jumping into an incredibly competitive space in China.

Not only is Xiaomi competing with established automakers in the country, such a Geely and Warren Buffet-backed BYD, but also upstarts such as Nio and Xpeng Motors.

And internet companies are also entering the smart electric vehicle arena. Chinese search giant Baidu launched a standalone electric car company in January and last month hired a CEO for that business.

Electric cars have taken off in China thanks to strong policy support from Beijing, including subsidies. Even though some of these measures have been reduced, research firm Canalys forecasts that 1.9 million electric vehicles will be sold in China in 2021, representing year-on-year growth of 51%.



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Opinion: How to invest in the future — here’s an idea for a ‘Spacebook’ fund


Two years ago I was so bullish on Tesla that I basically wanted to become “the Tesla Fund.” Tesla was trading around $50 a share. It closed at $563 on March 8.

That was two years ago. I thought the setup was perfect for Tesla
TSLA,
-5.84%

and the pending electric-vehicle onslaught. Fast forward to today and Tesla is up more than 10-fold since we bought it, even after dropping more than 30% from its $900 high. The EV revolution is here and most of the stocks of the companies in that revolution have risen to bubblicious levels.

I am scouring the globe and even the universe to find the next revolutionary industries to get in front of, and I keep coming back to what I call The Space Revolution and The Virtual Reality Revolution.

So here’s what I’ve come up with as the best risk/reward for my hedge fund and perhaps for individual investors as well. I’m calling it “Spacebook,” which means being overweighted in space stocks and Facebook
FB,
-3.39%
.

Big bargain

Let’s start with Facebook. Holy cow, Facebook’s valuation is cheap. The shares trade for 22 times the consensus earnings estimate for the next 12 months among analysts polled by FactSet. This is for a company whose sales are expected to increase 25% in 2021 and 20% in 2022, following 22% in 2020. (You can see the consensus sales estimates for Facebook and other big tech stocks here.)

That valuation is only slightly ahead of a forward price-to-earnings estimate of 21.7 for the S&P 500 Index
SPX,
-0.54%
.
For the index, sale per share are expected to increase 9% in 2021 and 7% in 2022, after a 3.5% decline in 2020.

Facebook’s consistently high double-digit revenue growth is a lot for a company that did $86 billion in revenue last year. What’s most exciting about the growth numbers is that they don’t include any of the upside that Facebook is about to achieve in the burgeoning virtual reality market provided by the Oculus platform. As I wrote in January, the VR market is coming, and it’s coming soon. Facebook is going to be one of the biggest winners in that market, if not the biggest.

As I type this about Facebook, I can’t help but think back to two years ago (and 1,000% ago) as I wrote to you about Tesla. I’m getting the same exact feelings about valuations and revolutions.

To be clear, it’s not this current generation of Facebook’s Oculus virtual reality headset that is going to go mainstream, but it’s the next, lighter, even more advanced one and the versions thereafter. Facebook has a critical mass of developers as well as apps and games being created for its platform already. The first version of Oculus was like a late-version iPod.

Space revolution

Now, how many times do I need to talk about the Space Revolution? The technology has gotten advanced and cheap enough that the whole thing is literally taking off. This is a private company’s dream come true. We are starting to see private space companies come public just as I was saying they would be two years ago.

Over the next 20 to 30 years, there are so many applications that can come to fruition. Space factories, space tourism, space hotels, asteroid mining, supersonic transportation, new colonies — the list goes on. If your time horizon is the next two to three years, I don’t know what to tell you. It might not happen in that period.

But if you are like me and thinking about the next 10,000 days, then we have to get in front of this revolution. I started two years ago when I bought Elon Musk’s SpaceX in the private market for my hedge fund and followed up a year and a half ago when we got into Virgin Galactic Holdings
SPCE,
-2.78%
.

A lot of public technology companies are bubbled up right now, space players included. We are probably paying two to three times what these companies are really worth right now as they come public.

VC-like investments

However, we are making venture-capital-like investments in these with the potential to see 50 to 100 times our investment over the next 10 to 20 years. I’m OK paying up a little for that kind of opportunity. If we compare this sector to the bubbled-up electric-vehicle revolution that is already here, I like the risk/reward of the coming Space Revolution much more. The EV market has already had its huge run.

So how do we continue to invest in the Space Revolution? SpaceX is clearly the best company right now. If you’re wealthy enough, with a little work, you can find a way to make a private investment in the company. I’ve done that in my hedge fund.

But if you don’t have hundreds of thousands (if not millions) to throw at SpaceX, I think Rocket Lab
VACQ,
-4.00%

is the best way to invest in the space revolution right now. You can read more about Rocket Lab and Vector Acquisition Corp., the special purpose acquisition company, or SPAC, that is expected to take it public, here.

I have begun to take a position in both the hedge fund and my personal account. It has come down some (like most space stocks and high growth tech over the last week) since my initial report and I have continued to add to the position. Virgin Galactic remains another favorite public space company to invest in. We first got into that name in November 2019 at around $8 per share.

Virgin Galactic, just like the other space companies, is probably a little overvalued at the moment. Especially with no revenue and not being able to get its test flights successfully into orbit. But again, we are looking up to 30 years down the road and this is currently my third-favorite way to invest in the space revolution.

I’m researching four or five other space companies that have recently come public. I’ve also made Facebook one of my largest positions again for the first time in a while.

As always when making an investment, I suggest that you give yourself room to add to the position if it falls. Over the next six months to two years, I think we’ll have the opportunity to buy most small-cap tech stocks at lower prices. On the flipside, I can’t guarantee that those positions will drop, which is why I have begun to build my positions in the space and virtual reality revolutions, and why I will continue to add to them if given the chance at lower prices.

That’s why I am basically becoming “the Spacebook Fund.”

Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column.



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Watch SpaceX launch Starship prototype rocket SN8’s high-altitude test


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SpaceX is preparing to launch the latest prototype of its next-generation Starship rocket on Wednesday, in a high-altitude flight that represents the company’s most ambitious test to date.

Starship prototype Serial Number 8, or SN8, will aim to fly as high as 12.5 kilometers, or about 41,000 feet. That’s significantly higher than the pair of 500-foot flight tests that SpaceX completed with prototypes SN5 and SN6 earlier this year.

The attempt comes a day after SpaceX nearly launched the rocket but was stopped short by a last second engine issue. The company has since reset for another attempt.

Notably, the goal of the SN8 flight is not necessarily to reach the maximum altitude, but rather to test several key parts of the Starship system.

“This suborbital flight is designed to test a number of objectives, from how the vehicle’s three Raptor engines perform to the overall aerodynamic entry capabilities of the vehicle (including its body flaps) to how the vehicle manages propellant transition. SN8 will also attempt to perform a landing flip maneuver, which would be a first for a vehicle of this size,” SpaceX said in a statement on its website.

Given the multiple development milestones the company is undertaking with the SN8 flight, SpaceX CEO Elon Musk gave the rocket low odds of complete success on the first try.

“Lot of things need to go right, so maybe 1/3 chance,” Musk said.

Starship SN8 is built of stainless steel, with the prototypes representing the early versions of the rocket that Musk unveiled last year. The company is developing Starship with the goal of launching cargo and as many as a 100 people at a time on missions to the Moon and Mars.

While SpaceX’s fleet of Falcon 9 and Falcon Heavy rockets are partially reusable, Musk’s goal is to make Starship fully reusable — envisioning a rocket that is more akin to a commercial airplane, with short turnaround times between flights where the only major cost is fuel.

The company is building and testing the Starship prototypes at its growing facility in Boca Chica, Texas. The facility on the coast of the Gulf of Mexico, about 20 miles east of the Texas city of Brownsville on the Mexico border.

Starship prototype rocket SN8 stands on the launchpad at SpaceX’s facility in Boca Chica, Texas on Nov. 10, 2020.

SpaceX

SpaceX also noted that it has completed over 16,000 seconds – or nearly four and half cumulative hours – of tests running its Raptor series of engines, which are built to power Starship.

Three of SpaceX’s Raptor engines at the base of its Starship rocket.

SpaceX

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